The Bank of England holds interest rates at 3.75%; it raises rates for the first time in three years, leaving the U.S. in a dilemma; a British village declares 'independence from the UK'; King Charles urges tech giants to exercise responsible control over AI.

On September 17, the Bank of England’s Monetary Policy Committee (MPC) voted 6–3 to hold the base interest rate steady at 3.75%. Three members voted in favour of a 25-basis-point hike to 4%. The Bank stated that the ongoing Middle East conflict continues to push up energy prices, and the UK’s August CPI inflation rate rose to 3.1%, potentially rising further over the coming quarters. The Committee judged that inflation risks had shifted markedly upward since July, though there remains no clear evidence yet that high energy prices have triggered second-round effects on wages and prices. The Bank also unanimously decided to reduce its holdings of UK government bonds—held for monetary policy purposes—to zero. This will be achieved by selling £20 billion of gilts annually, supplemented by maturing bonds, with completion targeted by 2034. The average annual reduction in holdings is expected to reach £46 billion. On September 16 local time, Donald Trump posted online that U.S. interest rates should fall to 1% or lower, “because the U.S. has the best credit in the world.” The White House likewise commented that the rate hike decision was “quite unfortunate.” Earlier that day, the Federal Reserve announced a 25-basis-point increase, raising its benchmark rate to 3.75%–4%. Immediately following the announcement, both U.S. equities and gold declined. This marks not only the Fed’s first rate hike in three years, but also the first such move under newly appointed Chair Jerome Powell—though the prompt notes Trump’s nomination of ‘Wash’ (likely a misspelling or confusion with former Fed Governor Kevin Warsh), which appears inaccurate; Powell has served since 2018. The unanimous 12–0 vote underscores the long-standing and resurfacing divergence between Trump and the Fed over interest rates. Why does one side advocate cutting rates while the other hikes? For Trump, low rates typically mean cheaper mortgages, lower corporate financing costs, and easier consumption and investment—factors especially helpful in securing votes ahead of the U.S. midterm elections. The Fed, however, weighs the fact that inflation remains above target, oil prices continue rising, and premature easing could reignite price pressures. In short: the White House wants to step on the accelerator, while the Fed insists on hitting the brakes. As the U.S. midterm elections approach in November, tensions between Trump and the Fed are set to intensify. A small village in Oxfordshire, UK—Piddington—recently held an unusually symbolic “independence referendum.” Local residents voted overwhelmingly to secede from the United Kingdom and declare themselves the “Principality of Piddington,” protesting the UK government’s plan to resettle migrants in the area. The catalyst for this “de-UK-ing” action was the government’s proposal to house 1,256 male migrants—drawn from asylum seekers—at a former military base near Piddington. With only around 300 villagers, residents expressed serious concerns about personal safety. Reports indicate this resettlement plan forms part of the UK government’s new strategy to address migration challenges—aiming to close expensive asylum seeker hotels and instead use facilities such as decommissioned military bases.

Historic two-round voting! The Bank of England cuts rates by 25 basis points as expected—but upside inflation risks deepen internal divisions.

Notably, Deputy Governor Clare Lombardelli cast her first-ever vote in opposition to Governor Andrew Bailey, joining the ‘hold’ camp—including Chief Economist Huw Pill—rather than supporting the majority decision to cut rates. Inflation expectations revised upward; target delayed to 2027 In its meeting minutes, the Bank of England acknowledged that medium-term inflation upside risks had “risen slightly” since May—particularly as food price increases may intensify wage negotiations and lift longer-term inflation expectations. The Bank’s latest forecast shows UK inflation peaking at 4% in September—higher than the previous projection of 3.7%. Meanwhile, the timeline for returning inflation to the 2% target has been pushed back to Q2 2027—three months later than previously anticipated. Notably, UK CPI has exceeded the 2% target continuously for over three years since May 2021, underscoring persistent structural price pressures. Dissenting members opposing the cut warned that easing policy too early could erode public confidence in the Bank’s ability to control inflation—potentially triggering unanchored inflation expectations. Pill stated in his remarks: “Current inflation risks remain elevated, and vigilance must not be relaxed prematurely.” Modest growth improvement—not yet robust On economic growth, the Bank raised its GDP growth forecast for Q3 2025 from 0.1% to 0.3%, and lifted its full-year 2025 GDP growth projection from 1% to 1.25%. However, its outlook for medium- to long-term growth remains cautious—reflecting the UK economy’s entrenched structural challenges of “low growth and low productivity”: — 2026 GDP growth forecast: 1.25% (unchanged from prior estimate); — 2027 GDP growth forecast: 1.5% (unchanged from prior estimate). UK economic data reveals a pronounced split: inflation remains above target; the labour market is beginning to weaken, though wage growth—while moderating—retains stickiness; and GDP growth prospects remain only modest. As George Brown, Senior Economist at Schroders, observed: “Employment, growth, and inflation each point toward different policy paths—which is precisely why an unprecedented two-round vote was needed to reach a majority decision.” Brown added: “We believe the likelihood of the Bank cutting rates below 4% this year remains low—unless inflation shows clear and sustained softening.” QT policy at a turning point: The Bank warns continued long-dated gilt sales could “amplify market stress” In a report released alongside the rate decision, the Bank of England issued a rare warning: amid weak global demand for long-duration assets, structural shifts in domestic funding allocation, and persistently rising government borrowing, continued sales of long-dated gilts could exert greater pressure on market liquidity.